Moderate recovery following a year of lacklustre growth
In Efic’s final edition of World Risk Developments for 2016, we provide an overview of tidal shifts of the year that was and the risks that lurk in 2017.
2016 proved to be another sub-par year for the global economy with the IMF revising global growth to 3.1% from its predicted 3.6%. Senior economist Cassandra Winzenried says, “economists have been over-predicting growth since 2010 and have been repeatedly disappointed by the sluggish nature of the recovery since the global financial crisis of 2008.”
The political tide also shifted decisively in favour of populism with the two largest political surprises in 2016 being Brexit and the election of Donald Trump. “These results come on the back of persistent economic weakness in advanced economies, the growing income divide, and the shrinking fortunes of the middle class,” says Winzenried.
Positively, Indonesia’s President Jokowi embarked on reforms aimed at deregulation, domestic industry revitalisation, eased trade restrictions, improved logistics and attracting foreign investment. “These reforms have led to a significant improvement in the 2017 World Bank’s Ease of Doing Business rankings, with Indonesia climbing from 106th in the world to 91st,” says Winzenried.
Looking forward, Winzenried says while growth in Australia’s major trading partners is expected to gradually fall, emerging Asia will continue to outperform. “Global recovery hinges on better growth in emerging markets. Specifically, the diminishing drag of commodity-induced recessions in Russia, Brazil and Nigeria needs to offset China’s continued slowdown.”
However, Winzenried outlines nine risks that may hamper recovery including European instability and banking system fragilities, a more insular US and increasing opposition to globalisation, and rising leverage in China.
“Aside from the myriad of factors that could cause 2017 to be another false start, we do see the potential for three positive surprises,” says Winzenried.
“These include President-elect Trump’s proposed fiscal stimulus following a prolonged period of fiscal austerity, stabilising commodity prices, and reforms in Asian economies including India and Indonesia.”
For Australian exporters, Winzenried says real resources and energy export values are expected to jump almost 10% this financial year, with LNG exports expected to rise 40%. “We expect Australia’s export profile to continue to rebalance, however the pace of the persistent upward march of services exports may be more difficult to match in 2017.”
Read the full December edition of Efic’s World Risk Developments on here.
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